Property flipping seems to have caught on the imagination of many people desirous of earning a profit from real estate investment. It is not as easy as it appears from the reality TV series, but you can surely earn good money through flipping if you know the common risks involved with this method of real estate investing.
What is flipping?
Flipping essentially means buying houses at less than their fair market value and then renovating them to make them attractive and desirable for buyers in the market. These houses are then sold at a higher price to book profit from the transaction. Success in flipping therefore depends on your ability to identify distressed properties and then making them ready for sale with the help of improvements that are not too costly. You should be able to correctly estimate the expenses that are required to make the house desirable for potential buyers. Any miscalculation and you are left with a revamped house that is not selling because of a high price tag. Therefore, flipping is considered risky for newbie investors. Unless you have a solid team of contractors that can repair the house quickly at a low price, it is not worthwhile to try your hands at flipping.
Study the market deeply
The amount of money or profits that you are expecting through flipping is dependent upon the market conditions. You must decide whether you should buy a house in present market conditions or wait till prices drop further. There is always a chance that the housing market may rebound, and you may not be able to buy the house in the price it is available today. The ability to make a right guess and buy the house at the optimal price is an ability that is a must for those who have a desire to make a mark in flipping. You can consult your real estate agent who has the knowledge about the pricing trends in the market to take a decision in this regard.
Keep a close eye on demographics
Sometimes flipping turns out to be a bad investment not because of the price at which the house is purchased or the expenses incurred on its repairs. It is because of a poor understanding of the demographics of the housing market. If the area is not developing fast and families are not getting attracted to it because of poor employment opportunities, all your efforts in flipping may not fetch desired results because of a poor demand among the buyers. You may be disappointed with the lukewarm response from the buyers and the inability to sell the house at a price point that you believed it was possible at the time of purchase.
Inability to put together a great team
The biggest obstacle to success in a flipping endeavor is the inability to stitch together a great team to repair the house quickly in low prices. It is foolhardy to think you will be able to find reliable and experienced contractors after purchasing a house. The time it takes to renovate a home and the money that is spent on this exercise have a crucial impact on the success of your flipping exercise. You need to keep the cost under control while ensuring high quality renovation of the property if you are desirous of selling the house at a profit later.
Finally, it is the lack of experience in flipping that spells disaster for many new investors. It is always a good idea to have experienced men by your side whether in the shape of mortgage brokers, realtors, contractors, and lenders. It can be very scary without the necessary experience to dive into the world of flipping.
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